Chapter 4: The ABCs of Stocks - An Introduction to Investing
Let's take a trip down Wall Street, shall we?
By: Bach Nguyen
I. What are stocks?
A stock, also known as “equity", is a type of security that represents partial ownership of the issuing corporation and is sold predominantly on a stock exchange. When you buy a stock, you essentially own a fraction of that company. Companies issue stocks to raise capital for various operational activities, and the holder of stock, a shareholder, may have a claim to part of the company's assets and earnings.
II. Why?
Investing in stocks can offer several advantages:
Potential for Higher Returns on Investment: Historically, despite occasional fluctuations, the international stock market has produced generous returns for investors over time.
Ownership in Companies and Benefits from their Growth: Buying stocks provides individuals with ownership in companies, allowing them to benefit from their growth in terms of capital appreciation and potential dividends.
Dividend Income: regular income (quarterly, annually, …) is paid to you from established stocks. E.g: Amazon (AMZN), Coca Cola (KO), Tesla (TSLA), Netflix (NFLX)
Hedging Against Inflation: Stocks have the potential to outpace inflation, helping to protect the purchasing power of your money.
On the other hand though, stocks also have some disadvantages for investors to keep in mind:
High Risk: The value of stocks is dependent on numerous factors, such as market trends, company performance and global events, therefore putting investors at risk of significant losses.
Fraud: Despite the extensive regulations governing the stock market, instances of fraudulent activities and insider trading still occur. Hence, it is crucial for investors to exercise prudence when choosing what stocks to purchase.
Emotional Investing and Lack of Information: Sometimes, investors may be prone to make impulsive decisions with their emotions rather than thinking rationally before acting. In addition to the lack of prior research and the myriad of misleading information that circulates the investing world, this can lead to undesirable outcomes and consequential losses.
III. Where to buy stocks?
You can buy stocks through various channels:
Stock Exchanges: like the New York Stock Exchange (NYSE) or NASDAQ.
Brokerage Firms: You need a brokerage account to buy and sell stocks. Online brokerage platforms (e.g., E*TRADE, Fidelity, or Robinhood) provide a user-friendly interface for trading.
IV. How to invest in stocks?
Learn more about finance: take an online course, read the news or subscribe to our newsletter!
Set financial goals, whether they are short-term (e.g., paying off credit card debt) or long-term (e.g., saving for retirement).
Diversify your portfolio: Spread your investments across different sectors and asset classes to minimize risk.
Research before making any trades or investments.
Learn to manage risk
Be patient
V. More facts:
You can buy stocks, or you can bet against a stock (shorting and option trading which will be discussed in another article)
You have to be at least 18 years old in order to open an online brokerage account; otherwise, you can only have an account that is under the supervision of a guardian
Most stock exchanges open in 9 AM local time and ends at 3-5 PM, opening on weekdays and close on weekends and holidays
Stock markets are usually government controlled, so the government can basically make calls on the rates and close the market any time - that's why politicians are a lot richer than what they make with their jobs!